Choosing the wrong superannuation fund could set an average Australian back about $200,000 by retirement, new research from Stockspot has found.
High super fees and poor fund performance are largely to blame, according to the online investment adviser.
Stockspot compared 600 multi-asset investment options across Australia’s largest 100 funds. The performance of the funds after fees were compared with other super options of similar risk over five years.
Dubbed “fat cat funds”, the 40 worst performing super funds manage 5.5 $billion and yet wipe out $117 million in fees from Australian retirement savings every year, according to the research.
On average, top performing funds, or “fit cat funds”, charge 0.97 per cent in fees a year, while a typical fat cat fund charges 2.13 per cent.
Which super funds showed the worst performance?
AMP topped the list as the worst fat cat fund this year, followed by One Path and Macquarie.
It’s not the first time AMP has been named a fat cat fund, with the wealth manager appearing on the list eight years in a row.
About 1.5 million Australians invest their retirement savings with AMP, the fourth largest of the 150 funds that provide member data, according to figures from Super Guide.
AMP and OnePath account for 12 and 11 of the fat cat funds respectively, more than half of the worst performers list, while Macquarie had five.
AMP is also the first fat cat fund to manage a super fund with a negative annual return of -2.2 per cent over five years, the worst return recorded across the funds analysed by Stockspot.
The super funds with the best five-year performances
Industry super fund UniSuper took out the top gong with seven fit cat super funds under its belt in 2020.
Five of the top-performing super funds were controlled by ASX-listed IOOF, while the country’s largest super fund, AustralianSuper, had four under its name.
All the top three fit cat funds charge less than 1 per cent in fees per year.
Fit cat funds outperformed fat cat funds by 22 per cent over five years.
The importance of fees
The report pointed out that, while it’s not possible to control how markets will perform, members have the power to pay less in super fees and that Australians are overpaying when it comes to fees.
“Our research over the last eight years shows funds that charge less than 1 per cent per annum perform better in the long-term,” the report noted.
“There is a clear correlation between high fees and long-term underperformance in superannuation.”
Chris Brycki, chief executive officer of Stockspot, said it was vital to pay attention to the amount of fees charged by a super fund.
“One of the golden rules of superannuation is the less you pay, the more you get. Always pay less than 1 per cent per annum in fees so your super isn’t eroded by high fees,” he said.
“Unfortunately, there are almost twice as many high-fee funds (more than 1 per cent per annum in fees) than low fee funds (less than 1 per cent per annum in fees).”
Mr Brycki said most Australians were generally reluctant to take action, even if they knew it could help them avoid potentially higher than average fees over their working life.
“Superannuation is the biggest investment most Australians have, yet most people have no idea how much they stand to lose if they’re in a fat cat fund,” he said.
“Sadly in the eight years of naming the worst performing fat cat funds, few people have moved out of these funds.”
Many Australians tend to put superannuation on the backburner until it may be too late, Mr Brycki added.
“Retirement may seem a while away, but when you get there and realise you could have been $200,000 richer, it won’t be a good feeling,” he said.